A Summer Internship Project Report

On

"Behavioral Analysis of Indian Corporate Towards

Merger & Acquisitions"

For

ASPERA ADVISORS (LLP), PUNE

By

"Rajendra Chouhan"

MBA-IInd Year (Finance)

Batch (2018-2020)

Under the guidance of

Prof. Priyanka Karki

Submitted to
"Savitribai Phule Pune University"

In partial fulfilment of the requirement for the award of

Degree of
Master in Business Administration (MBA)

ARIHANT INSTITUTE OF BUSINESS MANAGEMENT, PUNE – 411021

Arihant Education Foundation’s

ARIHANT INSTITUTE OF BUSINESS MANAGEMENT (AIBM)

(Affiliated to Savitribai Phule Pune University, Approved by DHE and AICTE, New Delhi)

Campus: S. No. 276/1/2, 277/1/2, 278/2, Bavdhan (BK.), Behind Crystal Honda Showroom, Pune-411021,
Maharashtra

Ph. : +91-20-67902403 Fax : +91-02-67902424 Email: [email protected] Website: www.arihant.ac.in

Ref. : AEF / AIBM Date

Certificate

This is to certify that the Project Report entitled “Behavioral analysis of Indian
corporate Towards Merger & Acquisitions” Prepared by Rajendra Chouhan Is
a student of Second Year Masters of Business Administration (M.B.A.)
Semester - III course Academic year 2019-20 at Arihant Institute of business
Management (AIBM), Pune – 411021.

To the Best of our knowledge, this is original study done by the said student and
important sources used by them have been duly acknowledged in this report.

The report is submitted in partial fulfilment of Masters of Business

Administration (M.B.A.) syllabus as per the rules prescribed guidelines
of Savitribai Phule Pune University of Pune.

(Project Guide) (External Examiner) (Director AIBM)

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Acknowledgement
The satisfaction and euphoria that accompanies the successful completion of any task would be
incomplete without mentioning the names of the people who made it possible, whose constant
guidance and encouragement crown all the efforts with success.

I am deeply indebted to all people who have guided, inspired and helped us in the successful
completion of this project. I owe a debt of gratitude to all of them, who were so generous with
their time and expertise.

I am highly intended and extremely thankful to Mrs. Vibha Joshi who as my external guide was a
constant source of inspiration and encouragement to me. The strong interest evinced by them has
helped me in dealing with the problem; I faced during the course of project work. I express my
profound sense of gratitude to them for timely help and co-operation in completing the project.

Also I would like to thanks to Ms. Priyanka Karki who as my internal guide for her continuous
guidance and support without her it will difficult to me to complete my project on time.

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TABLE OF CONTENTS

CONTENTS PAGE NO.

EXECUTIVE SUMMARY 5

INTRODUCTION 7

COMPANY OVERVIEW 9

MANAGEMENT TEAM 14

WHAT IS MERGER ? 16

JOINT VENTURES 24

METHODS OF VALUATION FOR MERGERS AND ACQUISITIONS 27

KEY CORPORATE LAWS CONSIDERATIONS 31

SCOPE OF MERGERS AND ACQUISITION 34

MERGER & ACQUISITION CHALLENGES AND THERE SOLUTIONS 38

DATA ANALYSIS AND RESEARCH 40

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Executive Summary

During 2005 - 2015 most of mergers and acquisition occurred in telecom sector. From the data
obtained it is found out that most of the companies are going for Mergers and Acquisition to
increase their value and to increase their profit. The success of mergers and acquisition can be
identified by comparing their stock price and growth rate before the process and after the
process. It is also found out that most of the mergers and acquisitions failed due to cultural
difference in different organizations. Sudden change in culture can’t be approved by the
employees in the organization which leads to a failure of the process. It is also found out that
most of the companies go for mergers and acquisition to increase their market share and profit
and most of the mergers and acquisition in India is success.

In the last few years, India had witnessed a substantial slowdown in the mergers and acquisitions
(“M&A”) activity. In the year 2014, Indian companies were involved in transactions worth $ 33
billion whereas in the year 2015, the value of M&A activity saw a dip to $ 20 billion. It is
forecasted that 2016 will see heightened global M&A activity and it is anticipated that the value
of transactions would cross $ 30 billion easily.1 The election of the Modi led government has
brought back tremendous faith in investor community. The coming year is expected to be a
booming year in terms of M&A activity as the investor community has seen certainty in Modi
led government’s reform agenda and the policies have been largely formulated to encourage
foreign investments. It is strongly believed that year 2016 will see a surge in M&A activity due
to the new bankruptcy law, the faster pace of approvals initiated by the government as part of its
ease of doing business in India campaign and the relaxation in Foreign Direct Investment norms.
Sectors such as IT-ITes, healthcare, energy, pharma, e-commerce and banking and financial
services were the key sectors in 2015. In 2015, inbound deals dominated the Indian M&A
landscape with interest coming from US, German and Canadian bidders. One can expect the
increase in the M&A deals and activities in the upcoming time as both local and international
investors and business houses are eyeing India with a hope of tremendous growth. In a year 2018
again an increase is analyse in the number of deals in respect of Mergers & Acquisitions, as
compared to previous years there is also increase in the value of deal of M&A.

International factors such as decline in the crude prices and low inflation locally will also help
the government to unleash flexible business policies to draw interest of the players in the India
economy.

Our laws envisage mergers can occur in more than one way, for example in a situation in which
the assets and liabilities of a company (merging company) are vested in another company (the
merged company). The merging company loses its identity and its shareholders become
shareholders of the merged company. Another method could be, when the assets and liabilities of
two or more companies (merging companies) become vested in another new company (merged
company). The merging companies lose their identity. The shareholders of the merging

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companies become shareholders of the merged company. The CA 1956 (Sections 390 to 394)
and CA 2013 (Sections 230 to 234), deal with the schemes of arrangement or compromise
between a company, its shareholders and/or its creditors. These provisions are discussed in
greater detail in Part II of this Paper. Commercially, mergers and amalgamations may be of
several types, depending on the requirements of the merging entities: Although, corporate laws
may be indifferent to the different commercial forms of merger / amalgamation, the Competition
Act, 2002 does pay special attention to the forms.

Objective of the project:

To study and analyse the process of Merger and acquisition.

To study the concept of merger & acquisition.

To study the perception of Indian corporate towards M&A

To study the needs and requirement of Companies for inorganic growth.

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INTRODUCTION

We have been learning about the companies coming together to from another company and
companies taking over the existing companies to expand their business. With recession taking
toll of many Indian businesses and the feeling of insecurity surging over our businessmen, it is
not surprising when we hear about the immense numbers of corporate restructurings taking
place, especially in the last couple of years.
Several companies have been taken over and several have undergone internal restructuring,
whereas certain companies in the same field of business have found it beneficial to merge
together into one company.
In this context, it would be essential for us to understand what corporate structuring and mergers
and acquisitions are all about. All our daily newspapers are filled with cases of mergers,
acquisitions, spin-offs, tender offers, & other forms of corporate restructuring. Thus important
issues both for business decision and public policy formulation have been raised. No firm is
regarded safe from a takeover possibility. On the more positive side Mergers & Acquisition’s
may be critical for the healthy expansion and growth of the firm. Successful entry into
new product and geographical markets may require Mergers & Acquisition’s at some stage in the
firm's development. Successful competition in international markets may depend on
capabilities obtained in a timely and efficient fashion through Mergers & Acquisition's. Many
have argued that mergers increase value and efficiency and move resources to their highest and
best uses, thereby increasing shareholder value.

To opt for a merger or not is a complex affair, especially in terms of the technicalities involved.
We have discussed almost all factors that the management may have to look into Before going
for merger. Considerable amount of brainstorming would be required by the managements to
reach a conclusion. E.g. A due diligence report would clearly identify the status of the company
in respect of the financial position along with the net worth and pending legal matters and details
about various contingent liabilities. Decision has to be taken after having discussed the pros &
cons of the proposed merger & the impact of the same on the business, administrative costs
benefits, addition to shareholders' value, tax implications including stamp duty and last but not
the least also on the employees of the Transferor or Transferee Company.

Merger and Acquisition had been the most popular means of inorganic expansion of companies
over the years. It is extensively used for restructuring the business organizations. Companies
undertake mergers and acquisitions based on strategic business motivations that are, in principal,
economic in nature.

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In corporate finance world M&A is one of the major aspects. One of the main reasons which
motivate the companies to M&A is the value created from this process. The companies go for
M&A with the objective of wealth maximization, increasing market share and some other
reasons. M&A can takes place by several methods, some of them are by purchasing common
stock of the company, by purchasing asset of the targeted company and so on. The main reason
for M&A is to diversify the risk, to increase the market share of the company, to increase the
plant size and to improve company’s performance. In India during the past two years several
M&A has happened and some of them has caused a rapid change in the market. There are four
types of mergers and acquisition, they are horizontal, vertical, conglomerate and concentric
merging.

Mergers and Acquisitions (M & A) are defined as consolidation of companies. Difference

between the two terms, Mergers is the combination of two companies to form one, wherein
Acquisitions is one company taken over by the other. M & A is one of the important aspects of
corporate finance world. The idea behind M & A is generally given is that the two separate
companies together create more value compared to being on an individual stand. With the main
objective of wealth maximization, companies keeps on evaluating different opportunities through
the route of merger or acquisition. In this, always synergy value is created by the joining or
merger of two companies. The synergy value can be analysed either through the Revenues
(higher revenues), Expenses (lowering of expenses) or the cost of capital (lowering of overall
cost of capital). Its obvious that, both sides of an M & A deal will have different ideas about the
worth of a target company: Its seller wants to value the company at as high of a price as possible,
while the buyer would try to get the lowest price that he can. There are, however, many
legitimate ways to value companies.

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Company overview

ASPERA Incorporated in January 2018, It is one of the fastest growing advisory firms in India
with the legacy of over 100-man-years. Aspera is professionally managed Investment Banking
Firm specialised in various areas including Mergers & Acquisition (Buy-Side/ Sell-Side),
Strategic Alliance, Joint Ventures, Fund Syndication (Debt Syndication, Private Equity, Venture
Capital, Acquisition Funding, etc.), and various other corporate advisory services. they have
established their footprints globally. Aspera have worked extensively on numerous projects
adapting to the criticalities of various industries.

ASPERA consists of professionals from various industry backgrounds which help their
customers through-out the business cycle. Aspera’s core capability, industry experience, world-
wide connections and committed management help Aspera to render finest growth instruments
permitting to clients’ precise requirements. ASPERA embraces astounding competence in
Inorganic Growth Advisory.

ASPERA has evolved as one of the prominent players in Debt Syndication, PE Funding, M&A,
International Business Development and consulting services over last several years. Team
ASPERA has supported several customers globally to grow their organisations in an organic and
an in-organic manner. Team, at ASPERA assist clients through-out numerous industries in their
different stages of business necessities with the primary objective of achieving long-term
tangible and intangible value enhancement.

ASPERA is a truly global Investment Bank having its network spread over more than 20
countries globally to support our clients for Mergers & Acquisition (M&A)/ Joint Ventures/
Technical Collaborations/ Strategic Alliances. Our extra-ordinary reach and strong network with
various professionals and Investment Banks gives us tremendous muscle to fulfil many cross-
border deal requirements of our clients.

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Global Networks Of Aspera:
Aspera is having a strong network in countries like :

 US,
 UK,
 Canada,
 Europe,
 Japan,
 France,
 Spain,
 Sweden,
 Germany,
 Italy and other Asian specific countries.
To provide end to end solution to there client as per there needs and
requirement it will be whether in form of investment, technology, strategic sales &
expansion or for any other specific needs of there clients.

Strong networks of Aspera in different countries and with help of 150+

personal network all over world make Aspera to do ease of business and provide best and client
specific solution to tie up with a company of a particular region.

Different Industries Served by Aspera:

 Auto Components
 Automation & Control
 Aerospace
 Cryogenic Equipments
 Emission & Control
 Energy Equipments
 Hydraulic Equipments
 Heavy Metal Fabrication
 Industrial Equipments
 IT/ITEs, BPOs/KPOs
 Oil & Gas
 Printing & Packaging
 Real estate

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Process of Merger & Acquisition

Receive Target Search &

Initial meeting Mandate Approach

Initial Meeting Signing

Sharing of Basic with Foreign Expression of
Documents client Interest

Deciding Next Negotiations &

Execution
course of Action Finalisation

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Explanation of above process

Initial Meeting:
Aspera is having a database from that database we have to approach to a MD or CEO of
company to arrange an initial meeting. In the meeting we understand the needs and requirement
of a company what they actually needed such as they want to go for merger, acquisition, joint
venture, strategic alliance as per there business need.

Receiving Mandate:
If the company is interested and after understanding all there needs and requirements an
expression of interest is been sign with the company. It is a document which contain all the terms
and condition in respect of a project.

Target Search & Approach:

The next step is to search for a valuable partner for our client. For these a research is been done
to find a partner who fulfill the needs and requirement of our client, who is financially sound and
stable. After research is been done then the research data is provided to our network to contact
with them to establish relationship.

Sharing of Basic Documents:

Basic documents are shares with the companies on which research is conducted. Basic
documents include Teasure and information memorandum. Which gives the overview of Indian
company in respect of there product, overview of financials, no. of established business units and
other basic necessary details.

Initial Meeting with Foreign client:

After successfully completion of all above steps and if the foreign company is interested in an
Indian company they will revert back to Aspera about there interest and clear some basic doubt,
after that an initial meeting is arrange between Indian company and foreign company to
introduce them and to deciding next course of action.

Signing Expression of Interest:

In an initial meeting after discussion and understanding all the needs, requirements, facts and
figure related to there prospects, mutually both the parties sign Expression of Interest. This is a
document which define the mutual business relationship between both the parties and agree on
the terms and condition in respect of a Project.

Deciding Next course of Action:

Now further process is been decided after accepting all the terms and condition visiting the plant
and checking the technology based on that decision is been taken.

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Negotiations & Finalisation:
Whatever the valuation of the company is or whatever the investment by the party is been
negotiated between both the parties is been done in a meeting after completion of all the above
steps successfully.

Execution:
After completion of all the legal formalities and all the above process now the final step is to
convert it into a valuable resource.

Competitors of Aspera Advisors

Competitors of Aspera Advisore are as follow:

(1) Alcor Mergers and Acquisitions Pvt. Ltd

(2) HU Consultancy Private Limited.
(3) Acumen M&A Advisors LLP
(4) Mape Advisory Group Private Limited
(5) Corporate Finance Associates
(6) Varrenyam Consultants Pvt. Ltd

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Management Team

Mr. Nikhil is a Graduate in Science (Physics) and Post Graduate in

Management Studies from Pune University-one of the top-most
Universities in the world.

Mr. Nikhil heads M&A function in ASPERA Advisors LLP and

takes care of the complete deal cycle-right from Deal Origination to
Deal Execution.

Mr. Nikhil Deshpande

(CEO)

She has proven and diversified experience of about 15 years in the

fields of Software, Financial Services and Real Estate. She has been
recognized with various awards during her career.

In ASPERA, Mrs. Vibha takes care of Global Networking, Corporate

communication, Human Resource Management & General
Administration.

Mrs. Vibha Deshpande

(Vice President)

Mr. Geoff has remarkable and strong business network in all the five
continents of the world. His impeccable connections has helped many
firms to expand their business in China, India and other Asian
Region.

Mr. Geoff is associated with ASPERA and participates in Cross-

Border M&A deals between India-UK.

Mr. Geoff Hancock

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Mr. G T Kannan as he is popularly known is a man of action; actioning
pre meditated plans and working towards performing goals for his clients
to drive professional excellence and success in their businesses as is his
regular practice.

At Aspera GT Kannan is a partner and currently take care of Bangalore

office.
Mr. M.G. Kannan

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WHAT IS MERGER ?
Merger is defined as combination of two or more companies into a single company where one
survives and the others lose their corporate existence. The survivor acquires all the assets as well
as liabilities of the merged company or companies. Generally, the surviving company is the
buyer, which retains its identity, and the extinguished company is the seller. Merger is also
defined as amalgamation. Merger is the fusion of two or more existing companies. All assets,
liabilities and the stock of one company stand transferred to Transferee Company in
consideration of payment in the form of:

• Equity shares in the transferee company,

• Debentures in the transferee company,

• Cash, or

• A mix of the above modes.

Types of Mergers
Merger or acquisition depends upon the purpose of the offeror company it wants to achieve.
Based on the offerors’ objectives profile, combinations could be vertical, horizontal, circular and
conglomeratic as precisely described below with reference to the purpose in view of the offeror
company.

(A) Vertical combination:

A company would like to takeover another company or seek its merger with that company to
expand espousing backward integration to assimilate the resources of supply and forward
integration towards market outlets. The acquiring company through merger of another unit
attempts on reduction of inventories of raw material and finished goods, implements its
production plans as per the objectives and economizes on working capital investments. In other
words, in vertical combinations, the merging undertaking would be either a supplier or a buyer
using its product as intermediary material for final production.

The following main benefits accrue from the vertical combination to the acquirer company i.e.

1. It gains a strong position because of imperfect market of the intermediary products,

scarcity of resources and purchased products;

2. Has control over products specifications.

Examples of Vertical Merger: Reliance and FLAG Telecom group

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(B) Horizontal combination:

It is a merger of two competing firms which are at the same stage of industrial process. The
acquiring firm belongs to the same industry as the target company. The mail purpose of such
mergers is to obtain economies of scale in production by eliminating duplication of facilities and
the operations and broadening the product line, reduction in investment in working capital,
elimination in competition concentration in product, reduction in advertising costs, increase in
market segments and exercise better control on market.

Examples of Horizontal Merger:

 Lipton India & Brooke bond

 Bank of Mathura with ICICI Bank
 BSES Ltd. with Orissa Power Supply co.

(C) Circular combination:

Companies producing distinct products seek amalgamation to share common distribution and
research facilities to obtain economies by elimination of cost on duplication and promoting
market enlargement. The acquiring company obtains benefits in the form of economies of
resource sharing and diversification.

(D) Conglomerate combination:

It is amalgamation of two companies engaged in unrelated industries like DCM and Modi
Industries. The basic purpose of such amalgamations remains utilization of financial resources
and enlarges debt capacity through re-organizing their financial structure so as to service the
shareholders by increased leveraging and EPS, lowering average cost of capital and thereby
raising present worth of the outstanding shares. Merger enhances the overall stability of the
acquirer company and creates balance in the company’s total portfolio of diverse products and
production processes.

Example: L&T and Voltas Ltd.

(E) Cash Merger:

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In a ‘cash merger’, also known as a ‘cash-out merger’, the shareholders of one entity receives
cash instead of shares in the merged entity. This is effectively an exit for the cashed out
shareholders.

Advantages of Mergers

Mergers and takeovers are permanent form of combinations which vest in management complete
control and provide centralized administration which are not available in combinations of
holding company and its partly owned subsidiary. Shareholders in the selling company gain from
the merger and takeovers as the premium offered to induce acceptance of the merger or takeover
offers much more price than the book value of shares. Shareholders in the buying company gain
in the long run with the growth of the company not only due to synergy but also due to “boots
trapping earnings”.

Mergers and acquisitions are caused with the support of shareholders, manager’s ad
promoters of the combing companies. The factors, which motivate the shareholders and
managers to lend support to these combinations and the resultant consequences they have to
bear, are briefly noted below based on the research work by various scholars globally.

(1) From the standpoint of shareholders

Investment made by shareholders in the companies subject to merger should

enhance in value. The sale of shares from one company’s shareholders to another and holding
investment in shares should give rise to greater values i.e. The opportunity gains in alternative
investments. Shareholders may gain from merger in different ways viz. From the gains and
achievements of the company i.e. Through

(a) Realization of monopoly profits;

(b) Economies of scales;

(c) Diversification of product line;

(d) Acquisition of human assets and other resources not available otherwise;

(e) Better investment opportunity in combinations.

One or more features would generally be available in each merger where shareholders
may have attraction and favour merger.

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(2) From the standpoint of managers

Managers are concerned with improving operations of the company, managing the affairs of the
company effectively for all round gains and growth of the company which will provide them
better deals in raising their status, perks and fringe benefits. Mergers where all these things are
the guaranteed outcome get support from the managers. At the same time, where managers have
fear of displacement at the hands of new management in amalgamated company and also
resultant depreciation from the merger then support from them becomes difficult.

(3) Promoter’s gains

Mergers do offer to company promoters the advantage of increasing the size of their company
and the financial structure and strength. They can convert a closely held and private limited
company into a public company without contributing much wealth and without losing control.

(4) Benefits to general public

Impact of mergers on general public could be viewed as aspect of benefits and costs to:

(a) Consumer of the product or services;

(b) Workers of the companies under combination;

(c) General public affected in general having not been user or consumer or the
worker in the companies under merger plan.

(a) Consumers

The economic gains realized from mergers are passed on to consumers in the form of lower
prices and better quality of the product which directly raise their standard of living and quality of
life. The balance of benefits in favour of consumers will depend upon the fact whether or not the
mergers increase or decrease competitive economic and productive activity which directly
affects the degree of welfare of the consumers through changes in price level, quality of
products, after sales service, etc.

(b) Workers community

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The merger or acquisition of a company by a conglomerate or other acquiring company may
have the effect on both the sides of increasing the welfare in the form of purchasing power and
other miseries of life. Two sides of the impact as discussed by the researchers and academicians
are:

Firstly, mergers with cash payment to shareholders provide opportunities for them to invest this
money in other companies which will generate further employment and growth to uplift of the
economy in general.

Secondly, any restrictions placed on such mergers will decrease the growth and investment
activity with corresponding decrease in employment. Both workers and communities will suffer
on lessening job Opportunities, preventing the distribution of benefits resulting from
diversification of production activity.

(c) General public

Mergers result into centralized concentration of power. Economic power is to be

understood as the ability to control prices and industries output as monopolists. Such
monopolists affect social and political environment to tilt everything in their favour to maintain
their power ad expand their business empire. These advances result into economic exploitation.
But in a free economy a monopolist does not stay for a longer period as other companies enter
into the field to reap the benefits of higher prices set in by the monopolist. This enforces
competition in the market as consumers are free to substitute the alternative products. Therefore,
it is difficult to generalize that mergers affect the welfare of general public adversely or
favorably. Every merger of two or more companies has to be viewed from different angles in the
business practices which protects the interest of the shareholders in the merging company and
also serves the national purpose to add to the welfare of the employees, consumers and does not
create hindrance in administration of the Government polices.

WHAT IS ACQUISITION?
Acquisition in general sense is acquiring the ownership in the property. In the context of business
combinations, an acquisition is the purchase by one company of a controlling interest in the share
capital of another existing company.

An ‘acquisition’ or ‘takeover’ is the purchase by one person, of controlling interest in the share
capital, or all or substantially all of the assets and/or liabilities, of the target. A takeover may be

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friendly or hostile, and may be effected through agreements between the offeror and the majority
shareholders, purchase of shares from the open market, or by making an offer for acquisition of
the target’s shares to the entire body of shareholders. Acquisitions may be by way of acquisition
of shares of the target, or acquisition of assets and liabilities of the target. In the latter case the
business of the target is usually acquired on a going concern basis. Such a transfer is referred to
as a ‘slump sale’ under the ITA and benefits from favourable taxing provisions visà-vis other
transfers of assets/liabilities (discussed in greater detail in Part VI of this Paper). Section 2(42C)
of the ITA defines slump sale as a “transfer of one or more undertakings as a result of the sale for
a lump sum consideration without values being assigned to the individual assets and liabilities in
such sales”. An acquirer may also acquire a greater degree of control in the target than what
would be associated with the acquirer’s stake in the target, e.g., the acquirer may hold 26% of the
shares of the target but may enjoy disproportionate voting rights, management rights or veto
rights in the target.

Another form of acquisitions may be by way of demerger. A demerger is the opposite of a

merger, involving the splitting up of one entity into two or more entities. An entity which has
more than one business, may decide to ‘hive off’ or ‘spin off’ one of its businesses into a new
entity. The shareholders of the original entity would generally receive shares of the new entity. If
one of the businesses of a company is financially sick and the other business is financially sound,
the sick business may be demerged from the company. This facilitates the restructuring or sale of
the sick business, without affecting the assets of the healthy business. Conversely, a demerger
may also be undertaken for moving a lucrative business into a separate entity. A demerger may
be completed through a court process under the Merger Provisions or contractually by way of a
business transfer agreement.

Methods of Acquisition:

An acquisition may be affected by

a) Agreement with the persons holding majority interest in the company management like
members of the board or major shareholders commanding majority of voting power;

b) Purchase of shares in open market;

c) To make takeover offer to the general body of shareholders;

d) Purchase of new shares by private treaty;

e) Acquisition of share capital through the following forms of considerations viz. Means of cash,
issuance of loan capital, or insurance of share capital.

Takeover:

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A ‘takeover’ is acquisition and both the terms are used interchangeably. Takeover differs from
merger in approach to business combinations i.e. The process of takeover, transaction involved
in takeover, determination of share exchange or cash price and the fulfillment of goals of
combination all are different in takeovers than in mergers. For example, process of takeover is
unilateral and the offer or company decides about the maximum price. Time taken in completion
of transaction is less in takeover than in mergers, top management of the offeree company being
more co-operative.

De-merger or corporate splits or division:

De-merger or split or divisions of a company are the synonymous terms signifying a movement
in the company.

Examples of Acquisitions:
1. Walmart acquires Flipkart, May, 2018
Deak size: $16 billion
US retail giant Walmart Inc purchased 77% stake in India’s largest online retailer Flipkart
for $16 billion, it is the country’s largest acquisition and the world’s biggest purchase of an
ecommerce company. It will include $2 billion of fresh investment as Walmart looks to take
on rival Amazon’s global expansion, pegging the value of Flipkart at $22 billion.

2. Tata Motors acquired Jaguar Cars and Land Rover, March 2008
Deal size: $2.3 billion, Country: United Kingdom.
Tata Motors is one of the common names on the Indian roads. It is the eighth largest car
manufacturer in the world. In terms of manufacturing trucks and buses, it comes in the
fourth and second ranks respectively. By March, 2008, Tata Motor offered a deal of $2.3
billion and acquired British brands, Land Rover and Jaguar.

3. Reliance Industries acquires Oil & Gas Assets (Marcellus Shale), April 2007
Deal size: $1.7 billion, Country: United States
Mukesh Ambani is the richest man in India and hence his company is the richest company
in India. Reliance industries are expanding its business, not only in India but all over the
world. The Marcellus shale is located in the northern Appalachia, Pennsylvania. It is the
major source of gas producing rocks. The thickness of these rocks is more than 900 feet.
Reliance Industries acquired this gas source in April 2007, offering a deal of $1.7 billion.

Advantages of Acquisitions
1. Access to capital

Following acquisition, you receive access to the capital of a larger company. Often, small
business owners face the necessity of investing their own money to continue growth. Even
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businesses with organic growth are often unable to access funds for acquisition. With
acquisition, a greater level of capital is available, allowing business owners the funds they need,
without dipping into their own pockets.

2. Access to knowledge

Acquisition allows access to those who have “been there/done that.” Leaders with a broad range
of experience can assist your company as it continues to grow. With a vested interest in your
company, parent company leaders prove willing mentors. The ability to speak with successful
entrepreneurs creates an environment of continued learning and growth.

3. Access to experts

Often, small businesses don’t have the resources to keep legal or financial counsel on hand.
When joined with a larger business, legal, financial, and human resource specialists (as well as a
plethora of others), are available as needed.

4. Encouragement to build and grow.

A parent company provides the means and encouragement to build and grow a bigger and better
business. With the business experience, they can guide your company to take calculated risks for
optimal growth.

5. Fresh ideas and perspective

With new people come fresh perspectives and ideas. Working with a team of experts who are
passionate about helping you reach your goals for the business, you’re provided with a
knowledge base and a team of people dedicated to your success.

6. Focus on your priorities

Acquisition provides the time to focus on the aspects of the business that are important to You
can dedicate a greater portion of your time to the aspects of the company you most want to
develop.

Acquisition by the right company provides the advantages of a larger company, while
maintaining the entrepreneurial style and autonomy of your business.

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Joint Ventures
A joint venture is the coming together of two or more businesses for a specific purpose, which
may or may not be for a limited duration. The purpose of the joint venture may be for the entry
of the joint venture parties into a new business, or the entry into a new market, which requires
the specific skills, expertise or the investment of each of the joint venture parties. The execution
of a joint venture agreement setting out the rights and obligations of each of the parties is a norm
for most joint ventures. The joint venture parties may also incorporate a new company which
will engage in the proposed business. In such a case, the byelaws of the joint venture company
would incorporate the agreement between the joint venture parties.

Examples of Joint Ventures Companies in India

1. Mahindra-Renault Ltd
Another good example of a Joint venture is between Mahindra-Renault, founded in 2007
brings together India’s largest automobile manufacturer Mahindra & Mahindra and
world-renowned vehicle maker, Renault SA of France.
The Indian firm owns 51 percent of this venture while remaining 49 percent stake is held
by Renault. This JV has launched several cars from the Renault stable in India.
These vehicles are manufactured in India with French technology but components made
in this country.
2. Dhirubhai Ambani Aerospace Park
Dhirubhai Ambani Aerospace Park is a joint venture between India’s corporate giant,
Reliance Group and global defense company from France, Dassault Aviation. The park is
located at Multi-Modal International Hub Airport, Nagpur (MIHAN). Agreement for
DAAP was signed between the Reliance Group and Dassault Aviation in October 2018.
Under this JV, Reliance and Dassault will design and manufacture an array of defense
equipment required to meet India’s growing demand for indigenous military hardware.
Additionally, DAAP will also serve as a hub for exporting military equipment to friendly
countries under the Make In India and Skills India initiatives launched by the government
of Prime Minister Narendra Modi.
3. GATI-KWE
GATI-Kintetsu Express Private Limited (GATI-KWE) is a joint venture company
between GATI– India’s leading logistics, distribution and supply chain provider and
Japan’s Kintetsu World Express.
The JV allows GATI-KWE to offer customers in India, a high-quality logistics service
using various modes of transportation across different terrain. “GATI-KWE is a 3500
people strong company with an intrinsic network that spans the length and breadth of

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India – GATI-KWE has a reach of 99.3 percent covering 667 districts out of 671 districts
in India with a fleet size of more than 4,000 vehicles,” states the company website.

Purpose of Mergers & Acquisitions

The purpose for an offer or company for acquiring another company shall be reflected in the
corporate objectives.

It has to decide the specific objectives to be achieved through acquisition. The basic purpose of
merger or business combination is to achieve faster growth of the corporate business.

Mergers and acquisition process involves various challenges such as cultural difference, lack of
experience in all business verticals of the companies to whom they are merged and some
companies are also forced to reduce their workforce to an optimum level. From the above table it
was understood that many of the companies are going for mergers and acquisition to expand
their business in a particular country. Mergers and acquisition also helps to increase the market
power of the country. The purpose of M&A has explained by considering two examples. First,
Ultratech cement has acquired Samruddhi cement with the purpose of consolidating cement
business into single entity, thereby creating a platform that will help in pursuing aggressive
growth going forward. Reliance industry has acquired reliance petroleum. The purpose of the
transaction was to allow Reliance Industries Ltd to emerge as one of the largest manufacturer of
polypropylene as well as to enhance shareholder value and reduce operating costs. Tube
investment of India has acquired Shanthi gear limited. The purpose of the transaction was for
Murugappa Group to enter new sector of business by providing its customers more products and
services. From the above three examples it is clear that the purpose of mergers and acquisition
depends upon the need of the company.

Faster growth may be had through product improvement and competitive position. Other
possible purposes for acquisition are short listed below: -

(1) Procurement of supplies:

1. To safeguard the source of supplies of raw materials or intermediary product;

2. To obtain economies of purchase in the form of discount, savings in transportation costs,

overhead costs in buying department, etc.;

3. To share the benefits of suppliers economies by standardizing the materials.

(2) Revamping production facilities:

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1. To achieve economies of scale by amalgamating production facilities through more intensive
utilization of plant and resources;

2. To standardize product specifications, improvement of quality of product, Expanding.

3. Market and aiming at consumers satisfaction through strengthening after sale Services;

4. To obtain improved production technology and know-how from the offered company.

5. To reduce cost, improve quality and produce competitive products to retain and Improve
market share.

(3) Market expansion and strategy:

1. To eliminate competition and protect existing market;

2. To obtain a new market outlets in possession of the offeree;

3. To obtain new product for diversification or substitution of existing products and to enhance
the product range;

4. Strengthening retain outlets and sale the goods to rationalize distribution;

5. To reduce advertising cost and improve public image of the offeree company;

6. Strategic control of patents and copyrights.

(4) Financial strength:

1. To improve liquidity and have direct access to cash resource;

2. To dispose of surplus and outdated assets for cash out of combined enterprise;

3. To enhance gearing capacity, borrow on better strength and the greater assets backing;

4. To avail tax benefits;

5. To improve EPS (Earning Per Share).

(5) General gains:

1. To improve its own image and attract superior managerial talents to manage its affairs;

2. To offer better satisfaction to consumers or users of the product.

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(6) Own developmental plans:

The purpose of acquisition is backed by the offeror company’s own developmental plans.

A company thinks in terms of acquiring the other company only when it has arrived at its own
development plan to expand its operation having examined its own internal strength where it
might not have any problem of taxation, accounting, valuation, etc. But might feel resource
constraints with limitations of funds and lack of skill managerial personnel’s. It has to aim at
suitable combination where it could have opportunities to supplement its funds by issuance of
securities, secure additional financial facilities, eliminate competition and strengthen its market
position.

(7) Strategic purpose:

The Acquirer Company view the merger to achieve strategic objectives through alternative type
of combinations which may be horizontal, vertical, product expansion, market extensional or
other specified unrelated objectives depending upon the corporate strategies. Thus, various types
of combinations distinct with each other in nature are adopted to pursue this objective like
vertical or horizontal combination.

(8) Corporate friendliness:

Although it is rare but it is true that business houses exhibit degrees of cooperative spirit despite
competitiveness in providing rescues to each other from hostile takeovers and cultivate situations
of collaborations sharing goodwill of each other to achieve performance heights through business
combinations. The combining corporate aim at circular combinations by pursuing this objective.

(9) Desired level of integration:

Mergers and acquisition are pursued to obtain the desired level of integration between the two
combining business houses. Such integration could be operational or financial. This gives birth
to conglomerate combinations. The purpose and the requirements of the offeror company go a
long way in selecting a suitable partner for merger or acquisition in business combinations.

METHODS OF VALUATION FOR MERGERS AND ACQUISITIONS

Several valuation methods are available, depending on a company’s industry, its characteristics
(for example, whether it is a start-up or a mature company), and the analyst’s preference and
expertise. In this chapter and the rest of the book, we focus on the mainstream valuation

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methods. These methods are classified into four categories, based on two dimensions. The first
dimension distinguishes between direct (or absolute) valuation methods and indirect (or relative)
valuation methods; the second dimension separates models that rely on cash flows from models
that rely on another financial variable, such as sales (revenues), earnings, or book value.

A. Relative Valuation Methods:

The notion that “time is money” or, stated alternatively, that “time is an expensive and limited
commodity” is one of the principal reasons for relative valuation methods. Other reasons are that
they are simple to apply and easy to understand. In essence, relative valuation methods give
corporate executives and analysts a “quick and dirty” way to estimate the value of a company.

Relative valuation methods rely on the use of multiples. A multiple is a ratio between two
financial variables. In most cases, the numerator of the multiple is either the company’s market
price (in the case of price multiples) or its enterprise value (in the case of enterprise value
multiples). The enterprise value of a company is typically defined as the market value of its
capital (debt and equity), net of cash. The denominator of the multiple is an accounting metric,
such as the company’s earnings, sales, or book value. Multiples can be calculated from per-share
amounts (market price per share, earnings per share, sales per share, or book value per share) or
total amounts. Note that whether the analyst uses per-share amounts or total amounts does not
affect the multiple, as long as the same basis is used in both the numerator and the denominator.

a) Price Multiples:
The most popular price multiples are earnings multiples. The price-to-earnings (P/E) ratio,
which is equal to a company’s market price per share divided by its earnings per share (EPS), is
the most widely used earnings multiple. It provides an indication of how much investors are
willing to pay for a company’s earnings. For example, a company whose P/E ratio is 15 is said to
be selling for 15 times earnings; put another way, investors are willing to pay $15 for each $1 of
current or future earnings. Companies with high earnings growth prospects usually carry high
P/E ratios because these companies are expected to be able to reward investors with a quicker
and larger return on their investment in the form of dividends, increase in share price, or both.

Because the earnings of a company are influenced to varying degrees by how the company is
financed (with debt or with equity) and where it pays income taxes, some analysts have turned to
a variant of the P/E ratio that removes the effect of a company’s capital structure and income
taxes on its earnings. This variant is the price-to-earnings before interest and taxes (P/EBIT)
ratio. Still other analysts, worried about the distortive effect on earnings of accounting policies
with respect to the depreciation of tangible assets and the amortization of intangible assets, prefer
to use the price-to-earnings before interest, taxes, depreciation, and amortization (P/EBITDA)
ratio. The P/EBITDA ratio is also popular because of the close relationship between a company’s
EBITDA and its cash flow from operations.

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The P/E, P/EBIT, and P/EBITDA ratios all require positive accounting earnings. But not all
companies are profitable—particularly young ones. For companies that are operating at a loss,
analysts must find an alternative to accounting earnings. The most popular alternative is sales,
which leads to the price-to-sales (P/Sales) ratio. The P/Sales ratio is useful in the early stages of a
company’s life cycle, when marketplace acceptance and growth in market share are considered
to be the two best indicators of the company’s likely future operating earnings and cash flows.

Another price multiple is the price-to-book (P/Book) ratio. It indicates the relative premium that
investors are willing to pay over the book value of their equity investment in a company.
Unfortunately, a company’s book value is highly sensitive to accounting standards and
management’s accounting decisions. For this reason, the P/B ratio is used selectively;
realistically, it is neither a valid nor viable valuation method for most companies, except perhaps
for financial institutions and insurance companies. These companies have highly liquid assets
and liabilities on their balance sheets, which makes book values more realistic proxies for market
values.

In contrast to the previous five multiples, the last one is based on cash flows. Because cash flows
are less sensitive than earnings to accounting choices and potential accounting manipulations,
some analysts prefer to base their valuation on the price-to-cash-flow (P/CF) ratio than on the
P/E, P/EBIT, or even P/EBITDA ratios. This approach is also consistent with the viewpoint that
value is primarily driven by cash flows.

b) Enterprise Value Multiples

Price multiples are popular with buy-side and sell-side analysts interested in valuing a
company’s price per share—that is, the company’s equity value per share. In the context of
M&As, however, corporate executives and analysts are often interested in assessing a target’s
total value, reflecting both debt and equity. In this case, the enterprise value is a better basis for
the valuation, hence the reason enterprise value multiples are widely used when valuing an
acquisition target.

The most popular enterprise value multiple is the EV/EBITDA multiple, although the EV/Sales
multiple can be used for unprofitable companies. For example, an EV/EBITDA multiple of 8
indicates that the acquirer is willing to pay eight times the target’s current or future EBITDA.
Many analysts often check that the EV/EBITDA multiple offered to acquire a target is in line
with the EV/EBITDA multiples paid in previous acquisitions. Offering an EV/EBITDA multiple
that is substantially higher than the average EV/EBITDA multiple for comparable transactions is
usually an indication that the acquirer is overpaying for the target.

B. Direct Valuation Methods:

Unlike the relative valuation methods, direct valuation methods give investors an explicit equity
value per share or share price objective. Preeminent among the group of direct valuation methods
are the discounted cash flow (DCF) models.

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a) Discounted Cash Flow Models
DCF models are premised on one of the most fundamental tenets of corporate finance: The value
of a company today is equal to the present value of the future (but uncertain) cash flows to be
generated by the company’s operations, discounted at a rate that reflects the riskiness (or
uncertainty) of those cash flows.

The most widely used version of the DCF model is sometimes referred to as the free cash flow to
the firm model, or weighted average cost of capital model. It provides an estimation of the
company’s total value, based on its free cash flows (FCFs) to the firm discounted at the weighted
average cost of capital (WACC). The FCFs of the firm are the cash flows from operations
available to all capital providers, net of the required capital investments necessary to maintain
the company as a going concern. The WACC reflects the hurdle rate that providers of capital
require, based on the risk they face from investing in the company. The equity value per share—
that is, the value accruing to the common (or voting) shareholders—is given by the operating
value of the company minus the value of any claims on the company’s cash flows by debt
holders, preferred shareholders, noncontrolling (minority) interest shareholders, and any
contingent claimants.

A variant is the free cash flow to equity model, which provides a direct estimate of a company’s
equity value per share. Instead of relying on the FCFs available to all capital providers, it
considers the FCFs available to equity holders: the FCFs to the firm minus all the cash flows
owed to claimants other than common shareholders. Because the focus is on equity holders, the
discount rate is the cost of equity, or the hurdle rate for common shareholders.

The FCF to the firm and FCF to equity models are highly effective valuation methods,
particularly when the capital structure of a target is expected to remain stable over time. Some
acquisitions, however, are predicated on material changes in capital structure, as in the case of an
LBO. In these situations, the adjusted present value (APV) model is easier to implement than the
other DCF models. Under the APV model, the value of a target is decomposed into two
components: the value of the company assuming that it is financed entirely with equity, and the
value of the tax shield (benefits) provided by a company’s actual (or expected) debt financing.
Because interest is tax deductible, using financial leverage increases a company’s value by
reducing its cash outflow for income taxes. As a company’s capital structure changes over time,
the first component (the unleveraged, or unlevered, value) is unaffected; the change in financial
leverage affects only the second component (the interest tax shield), which is relatively
straightforward to estimate.

b) Non Discounted Cash Flow Models

Real option analysis is another valuation method that relies on cash flows, although it is
grounded in option-pricing models instead of DCF models. Analysts rarely use real option
analysis to value an entire company. However, this valuation method proves useful when a
company has investment opportunities that have option-like features; these features are usually

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difficult, if not impossible, to capture using DCF models. For example, a company might have
rights (but not obligations) to delay investments, expand into new markets, redeploy resources
between projects, or exit investments. These rights are valuable options, particularly in an
uncertain environment. Real option analysis, which applies to real assets some of the techniques
used for valuing financial options, enables analysts to value the wide range of rights a company
has.

Economic income models, also called residual income models, differ from DCF models and real
option analysis, in that they rely not on cash flows, but on earnings to estimate a company’s
fundamental value. However, in contrast with price and enterprise value multiples that are based
on accounting earnings, economic income models rely on economic income. Economic
income is usually defined as net income minus a charge for using equity—one of the issues with
accounting earnings such as net income is that they include a charge for using debt (interest
expense), but not for using equity. The principle behind economic income models is that a
company that produces positive economic income creates shareholder value. Consequently, it
should be rewarded with a higher share price. The most popular economic income model is
economic value analysis, although other versions are also available.

The two most widely used valuation methods are the P/E ratio and the
Free Cash Flow (FCF) to the firm model. In contrast, few analysts used economic value
analysis, multiples based on book values (whether price or enterprise value multiples), or
the P/Sales ratio.

 Approximately 60 percent of the analysts expressed a strong preference for cash flow–
based valuation methods, particularly buy-side analysts. However, most analysts admit
that they often complement their cash flow–based analysis with a multiples-based
analysis.

 Some valuation methods are sector specific. For example, the P/B ratio and EV/Sales
ratios are rarely used, except to value financial institutions and retailers, respectively.

Key Corporate Laws Considerations

Sections 390 to 394 of the CA 1956 (the “Merger Provisions”) and Section 230 to 234 of CA
2013 govern mergers and schemes of arrangements between a company, its shareholders and/or
its creditors. However, considering that the provisions of CA 2013 have not yet been notified, the
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implementation of the same remains to be tested. The currently applicable Merger Provisions are
in fact worded so widely, that they would provide for and regulate all kinds of corporate
restructuring that a company can possibly undertake, such as mergers, amalgamations,
demergers, spin-off/hive off, and every other compromise, settlement, agreement or arrangement
between a company and its members and/or its creditors.

Procedure under the Merger Provisions

Since a merger essentially involves an arrangement between the merging companies and their
respective shareholders, each of the companies proposing to merge with the other(s) must make
an application to the Company Court5 having jurisdiction over such company for calling
meetings of its respective shareholders and/or creditors. The Court may then order a meeting of
the creditors/shareholders of the company. If the majority in number representing 3/4th in value
of the creditors and shareholders present and voting at such meeting agrees to the merger, then
the merger, if sanctioned by the Court, is binding on all creditors/shareholders of the company.
The Merger Provisions constitute a comprehensive code in themselves, and under these
provisions Courts have full power to sanction any alterations in the corporate structure of a
company. For example, in ordinary circumstances a company must seek the approval of the
Court for effecting a reduction of its share capital. However, if a reduction of share capital forms
part of the corporate restructuring proposed by the company under the Merger Provisions, then
the Court has the power to approve and sanction such reduction in share capital and separate
proceedings for reduction of share capital would not be necessary.

Applicability of Merger Provisions to foreign companies.

Sections 230 to 234 of CA 2013 recognize and permit a merger/reconstruction where a foreign
company merges into an Indian company. Although the Merger Provisions do not permit an
Indian company to merge into a foreign company, the merger provisions under Section 234 of
the CA 2013 do envisage this, subject to rules made by the Government of India. However,
neither is Section 234 currently in force nor have any rules been formulated by the Government
of India.

Foreign Direct Investment

India’s story with respect to exchange control is one of a gradual, deliberate and carefully
monitored advance towards full capital account convertibility. Though significant controls have
been removed and foreign companies can freely acquire Indian companies across most sectors,
these are subject to strict pricing and reporting requirements imposed by the central bank, the
Reserve Bank of India (“RBI”). Investments in, and acquisitions (complete and partial) of, Indian
companies by foreign entities, are governed by the terms of the Foreign Exchange Management
(Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 (the “FI
Regulations”) and the provisions of the Industrial Policy and Procedures issued by the Secretariat
for Industrial Assistance (SIA) in the Ministry of Commerce and Industry, Government of India.
The FI Regulations segregate foreign investments into various types: foreign direct investments

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(FDI), foreign portfolio investments (FPI), investments by nonresident Indians (NRI) on
portfolio basis, or on nonrepatriation basis, foreign venture capital investments.

A. Foreign Direct Investment (FDI)

Schedule 1 of the FI Regulations contains the Foreign Direct Investment Scheme (“FDI
Scheme”), and sets out the conditions for foreign direct investments in India. Annex A of
the FDI Scheme sets out the sectors in which FDI is prohibited. This list includes sectors
such as lottery, gambling , defence etc. A foreign investor can acquire shares or
convertible debentures60 in an Indian company upto the investment (or sectoral) caps for
each sector provided in Annexure B to the FDI Scheme. Investment in certain sectors
requires the prior approval of the Foreign Investment Promotion Board (“FIPB”) of the
Government of India, which is granted on a case to case basis. As per Press Note 6 of
2015, any foreign equity inflow that requires prior FIPB approval and is above INR 3,000
crores requires a prior approval of the Cabinet Committee on Economic Affairs.

B. Portfolio Investment Scheme

Foreign portfolio investors registered with the SEBI as per the SEBI (Foreign Portfolio
Investment) Regulations, 2014 and non-resident Indians (”NRI”), are permitted to invest
in shares / convertible debentures under the portfolio investment scheme. This scheme
permits investment in listed securities through the stock exchange.

C. Foreign venture capital investors (“FVCI”)

An FVCI registered with the SEBI can invest in Indian venture capital undertakings,
venture capital funds or in schemes floated by venture capital funds under the terms of
Schedule 6 of the FI Regulations. One of the important benefits of investing as an FVCI
is that an FVCI is not required to adhere to the pricing requirements that are otherwise
required to be met by a foreign investor under the automatic route61 when purchasing or
subscribing to shares or when selling such shares.

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Scope of Mergers and Acquisition

The Indian economy has witnessed a phenomenal propensity for Mergers & Acquisitions (M&A)
for the last three decades. M&A activity has never been as high, with an annual volume (9.7% of
Asia Pacific region) of USD 35.9 billion, with a total 409 deals in 2016 (IMPA Insights, 2016).
All big-four Management Consulting groups estimate a record- breaking high level of growth in
the M&A sector in India. A modification in the MRTP Act has played a crucial role in the
motivation for M&A activity as it has shown its potential for raising financial synergy as well as
being a prominent and authentic strategy for expansion. The leading sector for mergers and
acquisitions for the last four years was the Energy, Mining and Utilities sector in India, followed
by telecommunications, consumer durables and pharmaceuticals (IMPA Insights 2016). Merger
and acquisition activities have been a prominent not only in capitalist economies but also in
emerging economies since the last decade. Results show consistence in the performance of
this means of corporate restructuring. The main motive behind mergers and acquisitions is to
create synergy; that is, one plus one is more than two, and this rationale attracts companies
toward merger activity during times of difficult business conditions (Agrawal Manish 2003).
Merger and acquisition activity helps companies to secure the benefits of greater market share
and cost efficiency, and these benefits are demonstrated by the superior post-merger performance
of the acquiring entities.

According to Forbs, there are major four trends in merger and acquisitions in India,
namely, an abundance of liquidity, slowly rising debt costs, energy and technology leading the
way, and political factors (mainly in the US) to watch for in 2017 (Forbs, Jan 13, 2017). The
major reason behind this is strong government and political support for growth of business,
desire to reduce dependence on supply chain uncertainties by backward or forward integration,
taxation and distressing sales & marketing department by horizontal integration.

2016 was an encouraging year for the merger and acquisitions sector in India, due to stability of
government policy and the capital market. This stability resulted in a record volume – USD 56.2
billion – the highest since 2010. As has been noted 2016 was a year when the US and
Western Europe experienced a considerable set back due to government and political
instability. This performance depends largely on government policy. Domestic activity
dominates the Indian mergers and acquisitions sector, with USD 25.1 billion total volume and
505 deals in 2016. This is a 5% growth in comparison with 2015. The leading contributors to
merger and acquisition activity in India were oil and gas, financial services, cement and building
products, followed by pharmaceuticals and infrastructure (Ernest & Young, 2017). The major
reasons for the advent of these mergers were market share expansion, reduction of debt, and
taxation advantage (i.e. generating financial synergy).

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In recent years, the mergers and acquisitions sector in India has looked strong and consistent,
against all odds in international market. The major reason behind the outstanding performance of
the experience in India is the strength of the domestic economy and the desire to grow at the
international level. The year 2018 witnessed 562 cross border deals with a total volume of
USD 31.1 billion. The US gave strong support for cross-border mergers and acquisitions.

Recent M&A Trend Analysis for India

Substantial growth of M&As in the Indian corporate sector has been witnessed since the 1990s.
For instance total number of M&A has increased to 1900 in year 2018. As compared to 1200 in
year 2008 and 1200 during 2000-2007 from 600 during 1990-1999 and 268 during 1980 - 1990s.
Manufacturing sector accounts for 78% of the M&A in India.

Graph showing value and number of M&A from 2008-2018

Table: Details of Merger and acquisition from 2005-2018:

Year Number of deals Value (in USD billion)

2005 1254 36.24

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2006 1449 34.33
2007 1510 56.25
2008 1402 48.63
2009 1294 14.10
2010 1329 59.52
2011 1045 35.40
2012 1070 36.33
2013 956 31.80
2014 1085 31.45
2015 1250 51.33
2016 1400 60.10
2017 1600 61.00
2018 1800 130.10

Above Graph and Table shows total number of mergers and acquisition happened in India and
value of total mergers and acquisition. From the table it is clear that a total of 18,444 M&A
transaction have occurred during the entire period from 2005 to 2018. The maximum number of
M&A took place during the year 2018 (1800) while the lowest are observed during 2013(956).
The number of M&A happened during 2011 to 2015 is low as compared to a period from 2005 to
2010 and 2015 to 2018. The total number of M&A reported during the period of 2011 to 2015 is
5,406 which is 29.31% of the total M&A recorded during the entire period of study. The growth
rate of M&A is steady till 2010 and after 2010 it started to decline in a slow rate and only 956
M&A has occurred during the year 2013. Compared to first five years the M&A growth rate has
been declined by 20% during 2010 to 2014 but again from 2015 it gear up and there is sudden
hike to 1800 in 2018. The huge change is been seen during the year 2015 to 2018 and it is
26.02% of total no. of deal from 2005 to 2018. From the data available it is clear that the purpose
for which they are going for mergers and acquisition is varying from company to company.
Mergers and acquisition process involves various challenges such as cultural difference, lack of
experience in all business verticals of the companies to whom they are merged and some
companies are also forced to reduce their workforce to an optimum level. From the above table it

36 | P a g e
was understood that many of the companies are going for mergers and acquisition to expand
their business in a particular country. Mergers and acquisition also helps to increase the market
power of the country. The purpose of M&A has explained by considering two examples. First,
Ultratech cement has acquired Samruddhi cement with the purpose of consolidating cement
business into single entity, thereby creating a platform that will help in pursuing aggressive
growth going forward. Reliance industry has acquired reliance petroleum. The purpose of the
transaction was to allow Reliance Industries Ltd to emerge as one of the largest manufacturer of
polypropylene as well as to enhance shareholder value and reduce operating costs. Tube
investment of India has acquired Shanthi gear limited. The purpose of the transaction was for
Murugappa Group to enter new sector of business by providing its customers more products and
services. From the above three examples it is clear that the purpose of mergers and acquisition
depends upon the need of the company.

The value of announced M&A deals involving Indian companies more than doubled to reach
$129.4 billion in 2018, according to data compiled by Thomson Reuters. The previous highest
was $67.4 billion in 2007. The number of announced deals also grew 17.2% from a year ago.
Average M&A deal size for transactions with disclosed values increased to $127.8 million in
2018 compared to $82.8 million in the previous year. The year witnessed five deals above $5
billion (with a combined value of $39.8 billion) compared to only one in 2017 when the $11.6
billion Idea-Vodafone merger was announced.
M&A activity was led by domestic deals at $57.3 billion, more than double the
value from the previous all-time high of $26.7 billion in 2017. The number of announced
domestic deals rose 17% from 2017. Total cross-border M&A activity more than doubled to
$69.2 billion in 2018 from the previous year, largely due to growth in inbound M&A activity.
Inbound M&A, or foreign firms acquiring Indian companies, reached $55.8 billion in 2018, to
post a 77% increase in deal value from $31.5 billion in 2017. US-based Walmart Inc. acquired
Flipkart from SoftBank and Naspers Ltd, for $16 billion last year. The deal contributed to the
retail sector capturing 33.1% of India’s inbound M&A activity for a total of $18.5 billion
compared to the previous year’s $1.7 billion.

Materials and healthcare sector followed with 17.2% and 12.3% market share, respectively.
Private equity-backed M&A also witnessed strong activity, growing 72% in 2018. PE-backed
M&A deals amounted to $13.1 billion in 2018, a 72.5% increase in deal value compared to 2017.

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Private equity-backed M&A deals in India’s retail sector accounted for 16.2% of the market
share. The deals were worth $2.1 billion, a more than four-fold increase in value from a year ago.
Healthcare followed with 13.5% market share worth $1.8 billion, an increase of 163% from
2017. Outbound acquisitions by Indian companies reached an eight-year high in 2018, according
to the data. At $13.4 billion in total deal value in 2018, outbound M&A witnessed a more than
five-fold increase from the previous year, as the number of outbound deals grew 13% in volume
compared to 2017. This is the highest for India outbound M&A since 2010 ($29.1 billion).

The country’s outbound acquisitions focused on the materials sector as deal value reached $7.6
billion. Technology took the second place, accounting for 16.2% market share with deals
totalling $2.2 billion in value. Healthcare rounded out the top three with 10.6% market share
worth $1.4 billion. One of the major outbound deals last year involved UPL Ltd agreeing to
acquire the entire share capital of Arysta LifeScience Ltd, from Platform Specialty Products
Corp, for an estimated $4.2 billion.

Merger & Acquisition Challenges and there Solutions

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1. Many mergers and acquisitions today involve companies headquartered in two different
countries. This can complicate the transfer of best practices, since managers generally
assume that their knowledge bases apply universally. They do not always take into
consideration that performance drivers vary from culture to culture.
2. Language barriers between the participants of a cross-national merger must be readily
countered. Information concerning the deal must be translated into both languages so
questions can be answered in real time. Employees of both cultures must be educated in
the other language so that communication between workforces can be effective and
productivity can be facilitated.
3. The importance of communication, employee retention, and training and other
components of integration is fairly well known. However, integration activities should be
customized based on feedback from the affected employee populations. Communication
must work in both directions, up and down the organization.
4. Even the most talented business leaders are generally not experts in the various stages of
a merger and/or acquisition. Moreover, given ongoing demands of the business, they do
not have unlimited time to devote to merger activity. Retain the services of a qualified
consultant who understands the company’s merger goals and has the skills to help
achieve them.
5. A significant challenge is to ensure that ongoing business is not adversely affected by
M&A activity. Monitor employee performance to ensure that customer needs continue to
be met. Solicit customer feedback to verify that all is well on their end.
6. Integration planning and implementation should begin as early as possible, well before
the deal closes. If integration is started early, there is a better chance for a seamless
transition.
7. Merger training is often overlooked and can present obstacles if not implemented
promptly. For example, a group of acquired employees may need assistance in
participating in automated benefits enrollment. Without necessary training, it will take
longer for new employees to feel part of their new work environment.
8. Lack of information concerning whether or not their jobs will continue fosters fear in
employees. This fear can create an atmosphere of distrust and competition for jobs.
Employees can feel that either their co-workers from their own company or their
counterparts in the “other” company are potentially stealing their jobs. This can create
anger and resentment. People are less likely to be effective during this time, especially in
a team environment.

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Data Analysis and Research

What are the Company Activities ?

35

30

25

20

15

10

0
Manufacturing Trading Services

S.No. Activities No. of Companies

1 Manufacturing 30
2 Trading 15
3 Services 5
Total 50

Interpretations:

The above graph shows that out of a survey conducted 60% companies are engaged in
manufacturing activity followed by trading i.e 30% and remaining 10% companies are engaged
in Providig services.

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Which Sector Company Works in?
20
18
16
14
12
10
8
6
4
2
0
Automotive Oil & Gas Power & Food Plant and Aerospace Pharma
Electronic Processing machinery

S. No. Sectors No. of Companies

1 Automotive 18
2 Oil and Gas 10
3 Power and Electronic 8
4 Food Processing 7
5 Plant and Machinery 4
6 Aerospace 2
7 Pharmacy 1
Total 50

Interpretations:

As we can see in above graph almost 36% Companies involve in Automobile sector, 20% in oil
& gas, 16% in Power & Electronic and others are below 15%.

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Year to Year growth of the Company?

Growth Rate
Less than 10% 11%-20%

S.No. Growth Rate No. of Companies

1 Less than 10% 20
2 10% & Above 30

Interpretations:

 60 % Companies have a growth of 11-20% every year, that’s clear that there is a future
scope in these companies and they are having a capability of expansion of their
businesses,
 Almost 40% companies come under a growth rate of less than 10% in which many
Companies are newly established.

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Percentage of Domestic and Export Sales

Sales
Domestic Export Domestic & Export

S.No. Sales No. of Companies

1 Domestic 39
2 Export 5
3 Domestic & Export 6
Total 50

Interpretations:

 This indicates that 78% of Companies are serving to Indian customers whatever they are
producing.
 12% Companies are serving to both Indian as well as in other countries also.
 Whereas 10% Companies are those who are involved in only Export of what they are
producing.

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Are you looking for a cross-border transaction?

Yes May be No

S.No. Response No. of Companies

1 Yes 29
2 No 5
3 May be 16
Total 50

Interpretations:

 Most of companies think that transaction like Merger and Acquisitions, Joint Ventures,
Strategic alliance etc. bring value to their Company and they want to go for the same, as
it will help in the inorganic growth of their company.
 58% Corporate says yes.
 32% think that it may bring value to their Company.
 Whereas 10% thing that this will not add any value to their company.

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Kind of transaction Companies are looking for
25

20

15

10

0
Joint Venture Technical Collaboration Green Field Project Sell of Majority Equity

S.No. Kind of transactions No. of Companies

1 Joint Venture 23
2 Technical Collaboration 16
3 Green Field Project 9
4 Sell of Majority Equity 2
Total 50

Interpretation:

 46% want to do joint venture with their desire partner.

 32% Companies prefer Technical Collaboration for an inorganic growth.
 Whereas 18% prefer Green field.
 And 4% Companies want to sell there majority of stake.

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Your partner should be from which Geographical Regions.

Regions
20
18
16
14
12
10
8
6
4
2
0
North America South America Europe Asia

S.No Location No. of Companies

1 North America 18
2 South America 15
3 Europe 10
4 Asia 7
Total 50

Interpretations:

 36% Companies want to have their partner from North America region.
 30% Companies want to have their partner from South America Region.
 20% want to have Europeon partner.
 Whereas 14% Companies want to have their partner from Asia.

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What Values you expect to gain out of M&A?
25

20

15

10

0
Better Technology Cash Investments Increase in sale Brand value

S.No Value No. of Companies

1 Better Technology 22
2 Cash investments 16
3 Increase in sale 10
4 Brand Value 2
Total 50

Interpretations:

 There are 44% Companies who want to have pace with New and Better Technology.
 32% Companies want to have cash investment for the repayment of their debt and
expansion of their business.
 20% Companies want M&A to Capture Domestic as well as Foreign market.
 And 4% Companies want to raise goodwill in the market to increase brand value.

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Findings

 Most of companies think that transaction like Merger and Acquisitions, Joint Ventures,
Strategic alliance etc. bring value to their Company and they want to go for the same, as
it will help in the inorganic growth of their company.

 46% Companies prefer to do joint venture with their foreign partner to expand their
business.

 High End Technology is demanded by 44% of companies to manufacture an innovative

and quality product.

 32% Companies want cash investment in their company, so that they can repay their debt
and remaining amount to utilize for expansion of their business.

 M&A will help to increase the market share of the company and also provide a wider
customer base.

 Year by year transaction of M&A are increasing as to remain stable in a competitive

market.

 Most of companies have location preference from North America region.

 Majorities of the companies generate their sales from domestic market.

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Conclusion
Mergers have been the prime reason by which companies around the world have been growing.
The inorganic route has been adopted by companies forced by immense competition, need to
enter new markets, saturation in domestic markets, thrust to grow big and maximize profits for
shareholders. In the changing market scenario it has become very important for firms to
maximise wealth for shareholders. It helps in creating a win-win situation for all the concerned
stakeholders of the companies.

As per the research conducted most of the companies want to go for inorganic growth of a
company so that they can capture as huge domestic and foreign market, to produce innovative
product by high end technology and to increase company as well as their shareholders wealth

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Questionnaire

Name of the Company:

Name of the MD/CEO/Director:

Designation:

Location:

Contact Detail:

Q.1 What are the Companies Activities?

Manufacturing
Trading
Trading & Manufacturing
Services
Other (Specify)

Q.2 Which sector company works in?

Oil and Gas Food Processing

Automotive Plant and Machinery

Power and Electronic Aerospace

Pharmacy

Q.3 Year to year growth rate of the company.

Less than 10% 11% - 20% 21% - 30%

31% - 40% 41% - 50% Above 51%

Q.4 Percentage of Domestic & Export Sales.

100% Domestic 100% Export Domestic & Export

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Q.5 Are you looking for a cross-border transaction?

Yes No May be

Q.6 If yes, what kind of transaction you are looking for

Joint Venture Technical Collaboration Sell of Minority Equity

Green Field Project Sell of Majority Equity

Q.7 Your partner should be from which Geographical Regions.

North America

South America

Europe

Asia

Q.8 What value you want to gain out of M&A/JV?

Increase in Sales

Better Technology

Brand Value

Better Enterprise Valuation

Cash Investments

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BIBLIOGRAPHY

jagranjosh.com

ET Bureau

https://www.caclubindia.com

Schweiger, D. M., &Goulet, P. K. (2000).Integrating mergers and acquisitions: An international research

review.Advances in mergers and acquisitions volume 1 (pp. 61-91). Emerald Group Publishing Limited.

http://www.informit.com/articles

https://www.jagranjosh.com

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